On-site Meeting Held on the Management of Individual Delinquent Claims
Loan Companies Revive Debt Statute of Limitations Using Payment Order System
Financial Services Commission Prepares to Improve Delinquent Debt System
The financial authorities are moving to improve regulations in order to protect delinquent debtors. Following the Supreme Court's decision on July 24, which changed a precedent on debt collection for the first time in 58 years, it is expected that authorities will address the common practice of loan companies reviving the statute of limitations on debts through payment order systems and pursuing aggressive collection activities.
On July 29, the Financial Services Commission announced that Vice Chairman Kwon Daeyoung had presided over an on-site meeting at the Korea Inclusive Finance Agency to gather opinions on the "Current Status and Improvement Directions for the Management of Individual Delinquent Claims."
Vice Chairman Kwon stated, "When a loan is originated, the creditor and debtor are in a horizontal and mutually beneficial relationship, but during the delinquency stage, the relationship is no longer equal. Going forward, when revising systems related to the management of individual delinquent claims, we will assume this unequal power dynamic and strengthen protections for delinquent debtors."
During the meeting, participants discussed the status of debt purchase by loan companies that hold a large number of claims against vulnerable borrowers. Currently, delinquent claims are sold in the following order: banks and credit card companies → savings banks and asset management companies (AMCs) → large debt-purchasing collection agencies (loan companies) → small loan companies.
Lee Sujin, a researcher at the Korea Institute of Finance, pointed out, "Until now, regulatory frameworks have been shaped more by concerns over financial soundness than by debtor protection. In the United States, financial institutions selling claims are required to conduct thorough due diligence on buyers and must continue to monitor the soundness of the buyers even after the sale."
An official from the Financial Supervisory Service stated, "Financial companies are able to easily avoid their responsibility to protect customers by selling delinquent claims, while maximizing the value of recovery. With repeated sales, those who are least able to repay their debts face increasingly aggressive collection efforts."
In response, Lee Dongjin, a professor at Seoul National University School of Law, emphasized the need to encourage sound business practices among debt-purchasing collection agencies. Professor Lee advised, "To address these issues, it is necessary to reintroduce debtor protection measures related to the statute of limitations, which were excluded during the legislative process for the former 'Personal Debtor Protection Act.'"
The Financial Services Commission plans to thoroughly review all suggestions and policy proposals raised at today's on-site meeting and to continue holding expert discussions. In addition, the Commission will compare international practices with domestic systems and pursue improvements in the management of individual delinquent claims by financial companies, including measures to restrict indiscriminate extensions and revivals of the statute of limitations.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
